The Cambridge Weekly – 26th September 2022

Competing policy measures leave markets worried

The last two weeks have been sobering for investors world-wide, with all major markets (including bond markets) falling between 5% and 10%. This has come after an encouraging recovery rally over the summer  that was driven by falling oil prices, which fuelled expectations that the worst of the inflationary headwinds were behind us, allowing central banks to pause their aggressive monetary tightening course, and that a turnaround in economic fortunes was therefore imminent.

Recessions, bear market rallies and recoveries

It always looks darkest before the dawn. In times of market turbulence, investors cling to that simple saying as hope for a rebound. The economy is cyclical, and often severe downturns sow the seeds of their own recovery. We could certainly do with those seeds sprouting at the moment; so far, 2022 has been one of the worst years for stock market returns in a long time. Despite a recovery from the lows in June, the S&P 500 is down just over 20% year-to-date. The bear market has swiped down hard on equity and bond prices this year. Investors are understandably searching for signs of the new bull market beginning.

Utilities companies suffering an identity crisis

Utility companies have been in the news a great deal over the last few months. Energy supplies in the UK and Europe have become the focal point of the global economy’s struggles, as consumers grapple with
spiralling costs. Meanwhile, British Gas owner Centrica reported record profits just two months ago. Calls for a windfall tax on utilities – as Downing Street ultimately resolved to do for oil companies – have been blaring ever since. Two weeks ago, Centrica’s management jumped before they were pushed: it volunteered to cap its profits in a bid to help households.